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Banning The Dinar, Kosovo Tries To Sever Lifeline Between Serbs In North And Belgrade

One local Serb complained the restriction only became clear once one of the most popular banks among Serbs, NLB Komercijalna Bank, "stopped working."
One local Serb complained the restriction only became clear once one of the most popular banks among Serbs, NLB Komercijalna Bank, "stopped working."

NORTH MITROVICA, Kosovo -- It's a tough sell. Tens of thousands of ethnic Serbs who live and work in Kosovo but stubbornly reject the country's official currency have a week to ditch the dinar in their daily lives.

For two decades, encouraged by Belgrade and reluctantly ignored by Pristina, residents in 10 heavily ethnic Serbian municipalities have clung to the Serbian currency for everything from salaries and pensions to doctor's bills, restaurant tabs, and even taxi fares.

Then, last week, Kosovo's Central Bank issued a regulation restricting all cash transactions anywhere in the country to euros from February 1. It cited the constitution's stipulation of "one single currency" as legal tender. Dinars can still be held in bank accounts or exchanged for euros.

It may still take time to fully enforce the ban among Serbs who have resisted central authority on everything from license plates to cigarette stamps, usually with diplomatic and financial cover from Serbian President Aleksandar Vucic.

But it's an unmistakable sign of Kosovar impatience toward perceived Serbian intransigence as normalization talks drag on and Prime Minister Albin Kurti begins to eye a reelection battle sometime in the next 13 months, compounding Western fears of increased friction in a Balkan hot spot.

"The state has to do something urgently," Milivoje, an ethnic Serb in North Mitrovica who requested his last name not be published, told RFE/RL's Balkan Service in a plea that was clearly directed to the government of Serbia, not Kosovo.

He and his wife both receive their salaries from Serbia, he said, mentioning that in the case of his wife, a professor, the amount is the dinar equivalent of 1,000 euros. Both of their daughters work in the Serbian-financed health-care system and are paid in dinars. Their son is unemployed.

They are part of a massive parallel infrastructure financed openly and behind the scenes by Belgrade to support and encourage Serbs who reject Kosovar independence, consuming tens of millions of euros from the Serbian budget over Pristina's objections.

Abolishing the dinar is "catastrophic," Milivoje said, explaining he doesn't even have an account with any of the banks operating south of the Ibar, parlance for the rest of Kosovo, where ethnic Albanians mostly predominate.

He and other Serbs who spoke to RFE/RL's Balkan Service expressed surprise and anger at the two-week deadline for compliance, although there were early warnings when reports emerged of an interruption in dinar shipments across the Serbian-Kosovar border.

One local Serb complained the restriction only became clear once one of the most popular banks among Serbs, NLB Komercijalna Bank, "stopped working." Another called it "very hastily" enforced and expressed hope that "our president," an apparent reference to Vucic, would appeal for EU help "to freeze or postpone it."

With local tempers rising and international concerns already high following separate incidents last year that killed a Kosovar police officer and injured dozens of NATO peacekeepers in northern Kosovo, Pristina's and Belgrade's Western partners are watching events closely.

Hinting at possible consternation in Washington, U.S. Ambassador Christopher Hill initially called the dinar restriction an "unnecessary surprise." He repeated a call for Pristina to overcome a key sticking point by creating an association of Serbian municipalities, and suggested it was best to "avoid topics that are not of common interest."

Then on January 24, the U.S. Embassy in Pristina expressed fears that the ban would "negatively impact the ethnic Serb community in Kosovo" and cited commitments under the so-called Ahtisaari Plan that helped pave the way for Kosovo's declaration of independence in 2008, saying that "Serbia has the right to provide financial assistance to members of the ethnic Serb community in Kosovo."

"We urge the government of Kosovo to revisit this decision, consult with the affected communities, respond to the concerns expressed by the international community, and provide ample time for decisions to be implemented in order to mitigate the impact those decisions will have on its citizens," the embassy said in a response to RFE/RL's Balkan Service.

Kosovar Deputy Prime Minister Besnik Bislimi, who has made himself the public face of the ban, responded at a press conference by suggesting officials might appear to be "cherry-picking," but they're actually trying to avoid a selective application of Kosovo's constitution.

"If we have to cherry-pick, we do it," Bislimi said. "If it must be implemented, then insist that it be implemented in all cases."

Days earlier, European Commission spokesman Peter Stano said the bloc was still analyzing the currency clampdown but was "seeking explanations." He echoed warnings against "uncoordinated actions" that could hurt the normalization push.

Banking On The Dinar

Serbia's 2024 budget earmarks some 139 million euros ($151 million) for spending on Kosovo (85 million euros of it for institutions), up from 128 million euros ($139 million) last year. But experts caution that such allocations are difficult to track and that more expenditures could be "hidden" elsewhere in the budget.

Kosovar Serbs' reliance on the dinar has persisted throughout the postwar years, when the Deutsche mark was official currency until the adoption of the euro in 2002.

In 10 of Kosovo's 38 municipalities, where Serbs represent a majority, they have been able to make payments in dinars or withdraw dinars from the ATMs of Serbian-based banks.

Moreover, Serbs who work at institutions in Kosovo that are financed by Serbia, including schools, universities, and hospitals and other health facilities -- which represent the largest employers of Kosovar Serbs -- are paid in dinars. Pensions and child allowances from the Serbian state also arrive in dinars.

A retiree in North Mitrovica who only identified herself as Jadranka told RFE/RL's Balkan Service that as a result of the new regulation, she would have to travel to the Serbian border town of Raska every month to collect her pension.

"I don't know who is to blame," she said, "but for them to act this like this, I don't know, I have no words."

The dominant Serbian party in Kosovo, Serbian List, which has long-running ties to radical Serbian nationalists and Belgrade, accused Kosovar policymakers of trying to achieve the "expulsion of Serbs without the use of weapons." It said the ban on the dinar threatened "the physical survival of the Serbian people."

Bislimi acknowledged that the Central Bank's new regulation would disrupt life under an informal system that, he argued, lends itself to potential abuse.

He said that "insisting that money continue to be moved across state borders in duffel bags and private cars, and then distributed through unregistered and unlicensed offices, not only resembles a 19th-century idea but aims to keep the citizens who benefit from them dependent on such [practices]."

"Every citizen of the Republic of Kosovo who opposed [use of euros in banking and nonbanking transactions] has continuously been on the side of lawbreakers," he wrote on Facebook.

Belgrade Keeps Cash Coming

For years, dinars have arrived in Kosovo through the National Bank of Serbia, which has a vault in the northern Kosovo municipality of Leposavic. From there, it was transported by armored trucks operated by the Serbian arm of Henderson Asset Protection.

The regulation announced on January 17, which Bislimi said was green-lighted last month, designates the Central Bank as the exclusive importer of euro banknotes and coins.

It also restricts foreign currencies other than the euro to safekeeping in physical form or foreign-currency bank accounts for payments abroad or foreign-exchange activities.

"Currency exchange can be performed in the Republic of Kosovo only through institutions that are licensed by the Central Bank of Kosovo and offer this service," the regulation said.

Dinars have routinely been accepted and disbursed by Bank Postanske Stedionica, NLB Komercijalna Bank, and the Post of Serbia, a Serbian public enterprise.

Late last month, NLB Komercijalna Banka clients were informed via electronic messages, including some seen by RFE/RL's Balkan Service, that their accounts would be transferred to cities in Serbia near the border with Kosovo because the bank was closing its branches in Kosovo.

NLB Komercijalna Banka did not respond to an RFE/RL query about the reported closures.

NLB Komercijalna Banka is owned by the Slovenian NLB Group.

NLB has a bank elsewhere in Kosovo that operates in euros. The same clients were told that money could be withdrawn without commission from NLB ATMs throughout the region.

A former deputy governor of Kosovo's Central Bank, Sokol Havolli, said that while they won't be allowed for daily purchases, dinars can still be deposited in bank accounts and exchanged for euros. He said salaries could still be paid in outside currencies but that such funds would be converted into euros before they were withdrawn.

He suggested Serbia would be able to pay out salaries to employees in Kosovo, if the Kosovar and Serbian sides could agree on terms.

RFE/RL's Balkan Service asked the ProCredit, BKT, RaiffeisenBank, NLB, and TEB banks in Kosovo whether clients could open dinar accounts; only BKT said no, adding that their branches did not offer the exchange of dinars.

Mejdi Bektashi, a professor of economics at the University of Pristina, cites a number of potential reasons for the ban on cash payments in dinars, including fighting tax evasion or combating illegal transactions. For instance, he says, Kosovo's tax authorities have been unable to collect value-added tax (VAT) in northern Kosovo and other places where local Serbian majorities routinely circulate dinars.

But he also says such a decision requires more time to implement it. "Many Serbs from Kosovo receive aid, pensions, and salaries from the state of Serbia, and an alternative solution should be found through negotiations by the competent institutions," he said.

He says the Kosovar and Serbian governments along with their respective central banks could negotiate an arrangement for converting funds arriving in dinars into euros.

Kosovar Elections On The Horizon

EU and U.S. efforts to promote a normalization of diplomatic and other relations between Kosovo and Serbia, which does not recognize Kosovo's statehood, appear to have stalled along with hopes of early progress to clear hurdles on Kosovo's path to international institutions.

Meanwhile, national elections are due in Kosovo by February 2025, and Kurti's government could be eager to show the ethnic Albanian majority that it is serious about limiting some of the deleterious effects of perceived Serbian revanchism.

Kurti came to office briefly in 2020 pledging to impose "reciprocal" measures to encourage Serbia to recognize Kosovar authority, including over license plates, identification documents, and customs and taxes. A year later, in March 2021, he returned to power vowing more of the same.

After tensions escalated, a compromise was eventually reached in November 2022 that has mostly held.

But the settlement was clouded by mass resignations among Kosovar Serb police and other officials who reportedly objected to enforcing it.

Violence broke out in 2023 after Pristina tried to forcibly install ethnic Albanian mayors in northern municipalities where Serbs had quit, injuring dozens of soldiers in NATO's KFOR peacekeeping mission.

In September, a group of suspected Serbian gunmen, including a longtime Serbian List leader, were involved in a confrontation in which a Kosovar police officer was killed and another injured, setting off alarm bells outside the region.

Kosovo's Interior Ministry this month announced it was arming all police officers with rifles, in a move that Belgrade called "provocative."

This month, some Serbian business owners in northern Kosovo complained or even closed their shops over an apparent push by Kosovar authorities to get them to report sales and pay the accompanying taxes.

Written by Kosovo Unit head Amra Zejneli and Andy Heil based on reporting by Sandra Cvetkovic and Nadije Ahmeti of RFE/RL's Balkan Service

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